Antitrust Rationale for the Expansion of Professional Sports Leagues
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The Antitrust Rationale for the Expansion of Professional Sports Leagues THOMAS A. PMAINO, JR.* I. ANTITRUST AS A REMEDY FOR SPORTS LEAGUES' REFUSAL TO EXPAND Professional sports leagues are one of the last refuges of unchallenged monopoly power in America. Most monopolies have been forbidden by regulation or judicial decree from abusing their market power.1 However, Major League Baseball, the National Football League ("NFL"), the National Basketball Association ("NBA"), and the National Hockey League ("NHL") have each been able to acquire, maintain, and exercise their monopoly power with little judicial or regulatory oversight. Although the courts have allowed antitrust challenges to certain aspects of league behavior (such as restrictions on the free movement of players or franchises), 2 they have not directly challenged the means by which the owners of professional sports teams achieve their monopoly profits. The owners have successfully conspired to keep the number of franchises substantially below that which would exist in a free market. They have enforced this conspiracy through super majority voting requirements in the leagues' bylaws which have prevented the leagues from expanding to meet the demand from cities capable of supporting professional sports franchises. 3 The resulting artificial scarcity of franchises has given owners the leverage to force 4 fans and taxpayers to provide them with billions of dollars in subsidies. * Vice-President, Law, Parker-Hannifin Corporation; J.D. 1974, Cornell Law School; B.A., 1971, Allegheny College. The opinions expressed in this Article are personal to the author and do not reflect the opinions of Parker-Hannifin Corporation. The author would like to thank Jon J. Goldwood for his valuable research assistance in connection with this article. I See, e.g., Otter Tail Power Co. v. United States, 410 U.S. 366 (1973) (requiring electric power company to sell electric power to municipalities); Silver v. New York Stock Exch., 373 U.S. 341 (1963) (requiring New York Stock Exchange to provide full access by broker-dealer to facilities of the Exchange); Associated Press v. United States, 326 U.S. 1 (1945) (voiding Associated Press bylaw which allowed newspapers to veto the admission of their competitors). Numerous regulatory measures control the undue exercise of monopoly power. For example, the 1992 Cable Act prohibits cable companies from denying fair access to their facilities by competing delivery systems. 47 U.S.C. § 548(b) (1994). The 1996 Telecommunications Act passed by Congress in February 1996 requires local telephone companies to allow their rivals to interconnect with their phone systems. See Edmund L. Andrews, Congress Votes to Reshape Communications Industry, Ending a 4-Year Struggle, N.Y. Tum, Feb. 2, 1996, at Al, D6. 2 See infra note 220 and accompanying text. 3See infa notes 85-94 and accompanying text. 4 For a description of such subsidies, see notes 102-21 and accompanying text. "As 1678 OHIO STATE LAW JOURNAL [Vol. 57:1677 Neither the courts nor Congress has yet developed an effective remedy against this abuse of monopoly power. The owners' refusal to expand their leagues to meet the demand for additional franchises constitutes exactly the type of conduct that the antitrust laws were designed to prevent. Agreements among competitors to limit the output of a particular product have long been considered one of the most serious antitrust violations. 5 Such agreements harm consumer welfare by raising prices, reducing quality, and limiting the range of choices available to consumers. As the Supreme Court stated in National Collegiate Athletic 6 Association v. Board of Regents: A restraint that has the effect of reducing the importance of consumer preference in setting price and output is not consistent with this fundamental .goal of antitrust law. Restrictions on price and output are the paradigmatic 7 examples of restraints of trade that the Sherman Act was intended to prohibit. It would be a clear violation of the antitrust laws for a group of competing steel producers to pool their steel-making capacity in a joint venture and agree to place a ceiling on the amount of steel produced by the venture.8 The Senator Frank Lautenberg has observed: 'There is an artificial scarcity of teams that results from joint decisions of league members and their anticompetitive behavior. Demand is not met by supply; it is met by ransom and higher price franchises."' Stephen F. Ross, Monopoly Sports Leagues, 73 MNN. L. REv. 643, 661 (1989). In describing the pressures which teams have placed on their communities, Neil Austrian, the President of the NFL, recently commented, "There is a greed level that has overtaken the entire country." Robert J. Vickers, Cities Need Team Effort, CLEv. PLA[N DEALER, Dec. 17, 1995, at B1, B3. 5 [A]greements among competitors that achieve less than the competitive marketwide output are a classic concern of the antitrust laws. For a single firm to produce less than the optimal amount is one thing; for a group of competitors dominating a market to agree with each other to produce less than the optimal amount is quite another. Herbert Hovenkamp, Exclusive Joint Ventures and Antitntst Policy, 1995 COLUM. Bus. L. REv. 1,61. 6 468 U.S. 85 (1984). 7 Id. at 107-08. 8For a description of the antitrust standards for analyzing joint ventures, see Joseph F. Brodley, Joint Ventures and Antitnst Policy, 95 HARV. L. REV. 1523 (1982); Thomas A. Piraino, Jr., Reconciling Competition and Cooperation: A New Antitrust Standardfor Joint Ventures, 35 WM. & MARY L. REV. 871 (1994) [hereinafter Piraino, Reconciling Competition]; Thomas A. Piraino, Jr., Beyond Per Se, Rule of Reason or MergerAnalysis: A New Antitrust Standardfor Joint Ventures, 76 MINN. L. REv. 1 (1991); Robert Pitofsky, A 19961 AN7R UST RATIONALE economic effects of the owners' artificial limits on the number of sports franchises are no less serious. Nevertheless, certain courts and antitrust commentators argue that sports leagues should not be subject to the same antitrust standards as other joint ventures. 9 They point out that sports leagues differ from joint ventures in other industries because teams must cooperate with each other in order for their product to be available at all.10 According to this view, professional sports teams compete only on the field; they do not compete 11 in an economic sense. This Article explains the deficiencies in such a view of sports leagues. Professional sports teams do, in fact, compete on an economic basis, and the antitrust laws should not treat them any differently than firms in other industries. Under the antitrust standards which apply to all other types of joint ventures, the professional sports leagues should be required to expand to include all qualified applicants. A reasonable expansion of the leagues is compelled under two legal principles developed in the earliest days of antitrust jurisprudence. The "essential facilities" doctrine, which was first set forth by the Supreme Court in 1912,12 requires that joint ventures adopt open membership policies when they control resources essential for effective competition in the relevant market. Since no team can participate in a major professional sport other than through Major League Baseball, the NFL, the NBA, or the NHL, the leagues should be deemed to be essential facilities. As such, they should be precluded from enforcing the unreasonably exclusionary membership restrictions currently in effect. 13 FrameworkforAntitrust Analysis of Joint Ventures, 74 GEo. L.J. 1605 (1986). 9 See supra note 8. 10 See Smith v. Pro Football, Inc., 593 F.2d 1173 (D.C. Cir. 1978); San Francisco Seals, Ltd. v. National Hockey League, 379 F. Supp. 966 (C.D. Cal. 1974); Myron C. Grauer, Recognition of the National FootballLeague as a Single Entity Under Section I of the Shennan Act: Implications of the Consuner Welfare Model, 82 MIcH. L. REV. 1 (1983); Hovenkamp, supra note 5, at 108; Gary R. Roberts, The Evolving Confusion of Professional Sports Antitrust, the Rule of Reason, and the Doctrine of Ancillary Restraints, 61 S. CAL. L. REv. 943 (1988) [hereinafter Roberts, Evolving Confusion]; Gary R. Roberts, Sports Leagues and the Shernan Act: The Use and Abuse of Section I to Regulate Restraints on Intraleague Rivalry, 32 UCLA L. REv. 219 (1984) [hereinafter Roberts, Sports Leagues]. 11 See Smith, 593 F.2d at 1178-79; San Francisco Seals, 379 F. Supp. at 969-70; Roberts, SportsLeagues, supra note 10, at 234-35. 12 See United States v. Terminal R.R. Ass'n, 224 U.S. 383 (1912). 13 Under the essential facilities doctrine, any joint venture which controls a critical resource may be required to adopt an open membership policy. In the current American economy, "network" joint ventures are particularly likely to control technology which firms must access in order to compete in the relevant market. Thus, credit card systems, real estate 1680 OHIO STATE LAW JOURNAL [Vol. 57:1677 First conceived in 189814 and recently rediscovered by the federal courts, 15 the "ancillary restraints" doctrine defines the types of membership rules which the leagues should be permitted to adopt. Under the ancillary restraints doctrine, the courts have upheld restrictions on competition which are required to promote the legitimate efficiency objectives of joint ventures. 16 Although the leagues' current membership rules are broader than necessary for such objectives, the leagues should be permitted to enforce more narrowly drawn rules, including objective eligibility standards, reasonable limits on the total number of teams, and nondiscriminatory requirements for the payment of franchise fees.17 Taken together, the essential facilities and ancillary restraints doctrines provide an effective means of analyzing the membership restrictions of sports leagues. An integration of the two approaches would protect the legitimate interests of both the leagues and the consumers who have been harmed by the artificial scarcity of sports franchises.